Increase of F.D.I. limit in Insurance Sector to 49 percent from the existing 26 percent: Impact on Indian Economy and Indian Stock Market

The Indian Government
Recently approved the limit of FDI in insurance sector to 49 percent from the
existing 26 percent. The stock market has reacted positively to the increase of
FDI limit in insurance sector. The higher FDI capital will immensely help the
insurance sector which is extremely short on investment.

FDI in insurance sector inculcates
the saving habits, which in turn generates long-term invest able funds for
infrastructure building. In India, insurance sector is one of the most
important sectors as it ensures constant inflow of funds – the payout is
staggered and contingency related- thereby making it readily available for
investment on infrastructure building. Insurance sector contribute to GDP, is
quite insignificant. This will mark the new beginning in the insurance sector
and will bring a lot of capital inflows in the Indian Economy.

Effects on Indian
Economy and Indian Stock Market:

·This
Insurance Laws Bill, a rise to 49% will be a composite cap- which means that
foreign capital can flow in either as direct investment. So foreign investors
can either directly buy equity from the company or can buy shares on the stock
market.

·It will lead
to hike foreign holding in insurance joint ventures to 49 percent which means that there will lot of foreign
player coming to Indian Market for direct investment.

·The increase
in the capital will help to increase Infra Investment with the help of private
players or the foreign entities, in the Indian Market.

·Increase
capital inflow- Most of the private sector insurance companies have been making
losses. The increase FDI limits has bought some much needed relief to these
firms as the inflow of more than 10,000 crore is expected in the near term this
could go up to 40,000 crore in the medium to long term.

·Job
creation- With more money coming in, the insurance companies will be able to
create more jobs to meet their targets of venturing into under insured markets
through improved infrastructure, better operations and manpower’s

Our is
of the view that if you are an Equity Investor can invest in finance sector
companies with one to three year perspective.